Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue No. 13 - Evidence - December 7, 2016 (Second Meeting)
OTTAWA, Wednesday, December 7, 2016
The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, met this day at 4:15 p.m. to continue its study on this bill.
Senator Kelvin Kenneth Ogilvie (Chair) in the chair.
[Translation]
The Chair: Welcome to the Standing Senate Committee on Social Affairs, Science and Technology.
[English]
I am Kelvin Ogilvie, senator from Nova Scotia, chair of the committee. I'm going to ask my colleagues to introduce themselves.
Senator Seidman: Judith Seidman, Montreal, Quebec.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator Neufeld: Richard Neufeld, British Columbia.
Senator Dean: Tony Dean, Ontario.
[Translation]
Senator Petitclerc: Senator Chantal Petitclerc from Quebec.
[English]
Senator Nancy Ruth: Nancy Ruth, Ontario.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Raine: Nancy Greene Raine, British Columbia.
Senator Eggleton: Art Eggleton, Ontario, deputy chair of the committee.
The Chair: Thank you, colleagues. In the room we have Monique Moreau, Director, National Affairs, Canadian Federation of Independent Business. By video conference, from the Quebec Employers Council, we have Yves-Thomas Dorval, President and Chief Executive Officer.
I'm going to invite Mr. Dorval to make his presentation.
[Translation]
Yves-Thomas Dorval, President and Chief Executive Officer, Quebec Employers Council: Thank you to the committee for inviting me to this meeting. First of all, I would like to say that, generally speaking, when we analyze data on retirement income needs for all Canadians, it is important to understand that there are segments of the population that have different problems. There are some sectors, some segments of the population that have access to retirement income because they are well-off or, conversely, because the guaranteed income supplement or other programs ensure a certain safety net.
In our view, with respect to retirement income financial needs, the Canadian system is very good as a result of the various levels, but there are issues within certain segments of the population that need to be addressed. Bill C-26 is also part of a process where, in some provinces, not to mention Ontario, there are issues and a willingness to put in place a provincial program.
You know that Quebec has the Quebec Pension Plan, which has its own plan and provides some general harmonization with the Canada Pension Plan (CPP). In response, the federal government has developed a proposal. Following discussions with the provinces, an agreement has been made with the majority of the provinces, with the exception of Quebec, where there are more specific concerns about needs related to lower incomes and the impact that changes might have on some businesses. So there is a desire to find solutions.
We welcomed Bill C-26 very openly because it represents both a moderate and consensual approach with several provinces to try to improve the situation a bit. However, it is an overall solution for all segments of the population, while the needs are not necessarily the same for each and every one of them.
We welcome the bill very openly. However, we are concerned about the cost implications for some businesses, which will likely see amounts allocated to a program that will be very long-term, when people retire, while what several businesses need is to invest in their development immediately. However, we do understand the intent of Bill C-26.
We have another concern. When it comes to retirement income and, most importantly, saving for retirement, there is a lot of information about registered plans available in the private sector and the public pension plan. However, this does not represent the total savings that citizens put aside to build their estate, which they will use when they retire. There are many other tools for which it is not easy to calculate the contribution. Let me give you a quick example: home ownership.
A property is an asset for individuals that they build throughout their lives. It can be used in an extremely interesting way for their estates and retirement income in terms of capital accumulation or where they can live in their old age. This is not taken into account when calculating retirement savings, yet it is an important vehicle. Currently in Canada, there are measures that impede home ownership because of particular issues specific to certain regions of Canada, which is quite understandable. However, in Quebec, for instance, home ownership should be encouraged more.
There are other types of savings that allow individuals to accumulate amounts that are not necessarily in the registered plans. The picture of retirement savings is not complete. Not all segments of the population have the same needs. At the same time, we believe that Bill C-26 is trying to strike a balance in this, which is why we accept it openly.
We also understand that Quebec has concerns because the compulsory contributions, both to individuals and employers, are amounts that will one day be used for retirement but that, for some time, will be a drain on expenditures that will not be made by companies when it comes to investment or by individuals when it comes to consumption.
The government's role is to come up with proposals that, with some arbitration, demonstrate openness to this, but we will see the impact later. One thing is certain: we should ensure that incomes are not reduced for certain segments of the population, including individuals with low incomes or who receive other types of income from the social safety net, such as the guaranteed income supplement, because they will have contributed at a time when they did not necessarily have many ways to save.
I will stop there. I am ready to answer your questions.
The Chair: Thank you very much, Mr. Dorval.
[English]
We'll now turn to Ms. Moreau.
Monique Moreau, Director, National Affairs, Canadian Federation of Indepedent Business: Thank you for the opportunity to be here today and to share the small business owner perspective on premium increases to the Canada Pension Plan.
You should have a slide presentation in front of you that I would like to walk you through in the next few minutes.
As some of you know, CFIB is a not-for-profit, non-partisan organization representing more than 109,000 small- and medium-sized businesses across Canada. Our members represent all sectors of the economy and are found in every region of the country.
It is important to remember that Canada's small businesses employ 70 per cent of Canadians working in the private sector and are responsible for the bulk of new job creation, representing about half of Canada's GDP. Addressing issues of importance to them can have a widespread impact on job creation and the economy.
CFIB takes its direction solely from our members through a variety of surveys throughout the year, and in all previous member surveys on this topic, a strong majority of members have told us they will be directly impacted by CPP premium increases.
The state of the economy has a big impact on small business and the middle class. As you see on slide 3, one of the surveys CFIB conducts is our monthly business barometer. Our latest barometer shows that small business confidence moved up very slightly in November, sitting at 59.4 points, but has remained within a narrow horizontal track since this past April. Ideally, we want to see this index between 65 and 70 when the economy is growing at its full potential.
Although employment plans tend to fluctuate seasonally, this November's downward turn continues. We had our first sign of this in October. As you see on slide 4, the blue line shows the percentage of respondents planning to hire, that's 15 per cent; and the red line are those planning to lay off, 20 per cent. Normally, these lines should not be crossed, and we'd like to see them further apart, as we did in early 2016.
Like many other government programs, the biggest issue around CPP increases is awareness. As you see on slide 5, 40 per cent of Canadians think the government pays into their portion of CPP and nearly three quarters of Canadians don't realize that current retirees will not benefit from the proposed expansion. In fact, nearly one quarter of current retirees themselves wrongly believe they will see larger CPP benefits as a result of the proposed expansion.
It is unclear to most Canadians that it will take up to 40 years of increased premiums in order for a worker to feel the full impact of these increases on their CPP benefits.
Small business owners don't have money hiding under the mattress waiting for government tax hikes. As indicated on slide 6, if the CPP/QPP is increased, even if it results in higher future benefits, two thirds of business owners indicated they would feel pressure to either freeze or cut salaries, while nearly half would be forced to reduce investments in their business. This impact comes at a time when the government is trying to encourage innovation and job creation in small firms.
On slide 7 you'll see that employed Canadians also oppose a CPP hike. Nearly 70 per cent indicated they opposed an increase if the consequences meant a freeze in their wages or salary, while 83 per cent were opposed to the plan if increases led to a cut in their wages or salary.
As you can see on slide 8, if employed Canadians had extra money to save more for retirement, they would firstly save and invest in RRSPs and TFSAs over other savings vehicles such as the CPP and QPP. Small business employers also favour such savings vehicles if they had the opportunity to contribute towards the retirement savings of their employees.
If the government is trying to help Canadians save more for retirement, as you can see on slide 9, only 18 per cent of Canadians would choose mandatory CPP increases. There are a variety of other options available, including reducing taxes, creating new incentives for savings and allowing employees to voluntarily contribute to their own CPP/QPP plan. Putting pressure on financial institutions to lower fees for management retirement savings vehicles is also an important consideration.
It is clear that Canadians are uninformed about CPP and want the government to consult with them before proceeding with their plans to expand. As you see on slide 10, nearly 80 per cent of Canadians, many of whom form the middle class, want to share their views with government. Small business owners also want an opportunity to engage with government on this issue.
We strongly recommend that the federal government encourage their provincial counterparts to engage in such consultation. We also ask the federal government to recall their promise made in Budget 2016 where they said:
. . . the Government will launch consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.
Lastly, if the government does intend to go ahead without consulting Canadians on this move, we suggest they adopt the following mitigating measures: First, exempt the first $27,000 of income from additional CPP premium increases similar to what the Quebec government is proposing; second, offer up tax savings by sticking to their promise to reduce the small business tax rate; third, implement a permanent, lower EI rate for small businesses; and, last, exempt self-employed Canadians who pay double the amount of CPP from these increases.
These conclude my remarks. Thank you for the opportunity and I am happy to take your questions.
The Chair: Colleagues, when you ask a question, please indicate a specific witness to direct it at because we have one witness by video conference. I will invite the other to see if they have any comments to add after the first witness has responded. Don't just throw it out there because it just leads to dead air time.
With that, I'm going to proceed to give Senator Dean, the mover of the bill in the Senate, the first question; and Senator Stewart Olsen, the critic, the second question.
Senator Dean: Thank you, chair. My first question goes to Ms. Moreau. Thank you for being here. I have a long- standing association with your organization stretching back about three decades.
I have seen slide decks like this before. My question is this: I have noticed over the last several years — and it's been replicated in some discussion over the last several months in the discourse around retirement planning and income replacement for Canadians — this notion that there must be a choice between a CPP or an enhanced CPP on the one hand as opposed to access for individually based retirement savings through TFSAs or RRSPs or investment in property or, indeed, putting money under the mattress.
Those of us who have looked at pensions for a number of years will, I think, understand from the decades-long experience with Canada's retirement system that it isn't about either/or, that it's about a healthy mix.
Is that mix between the three components — OAS, GIS, personal savings — and a CPP plan that's vibrant still something that you think your members in the organization would see continuing, and specifically do you see a vibrant, healthy CPP which replaces a reasonable degree of income for people in retirement as an important if not an essential component in the retirement scheme for Canadians?
Ms. Moreau: Thank you for the question. I think, most important, senators should know that our members are very much in support of CPP; they understand the role it plays as a pillar of retirement savings. In fact, in the 1990s when CPP was unhealthy, when the account and the balance was in crisis, our members voted for and supported increased premiums without any increased benefits on the other end. They wanted to invest in CPP.
But the Chief Actuary has told us now that the CPP is fully funded and will be for many decades now. I think that our members are saying, essentially, they can't afford the increases that are coming. The questions we've asked in our surveys and our public opinion polling have given you the research in one of the decks that you're familiar with seeing over these years.
In terms of a mix of choice versus those contributions, I think our members would largely prefer to be able to choose in between. They see CPP for what it is, replacing at the time it was meant to be a quarter of your retirement income, and they want to be able to use any extra money they have to then invest as they see fit, whether that's back into their business or into an RRSP or TFSA or property as you suggest. At this time, they feel that increases in CPP will remove that extra income flexibility from them and will force it into CPP when they would have rather seen it, perhaps, if they have it, in something else.
The Chair: Mr. Dorval, if the question goes first to Ms. Moreau, if, as she's ending her question, you raise your hand if you want to come in and add something to the question, then I'll recognize you. Otherwise I'll move on to the next senator. In this case, do you wish to add anything?
Mr. Dorval: Yes, I can. The Canadian government has also introduced another incentive for investment for retirement, such as in Quebec. We have put in place a voluntary pension plan that each employer over a certain level of employees has to offer to all of their employees. They don't have the obligation to contribute as well as the employees do not have the obligation to contribute, but if they don't make any choice, it's mandatory if they choose not to contribute.
This is one example of another incentive for people to invest in their pension plan. It is not mandatory so people who have more possibility or employers who would like to use this new tool to attract and retain employees, it's a good tool also, and it contributes to the building of total pension revenue, income revenue disposal at retirement.
That being said, here in Quebec we have another issue; our provincial pension plan, public pension plan, is not fully funded as well as at the Canadian level. So the employers, because they are responsible, and our organization represents more than 70,000 employers in Quebec, we have supported an increase of the premium in order to improve the funding of the public pension plan. Because the pension plan in Quebec was not appropriately funded at the beginning, we already pay more in Quebec than in the rest of Canada.
An example, the percentage we pay on the insured revenue is 10.65 per cent, and in the rest of Canada it's 9.9 per cent. So we have a strong pressure on the premium on the side of both employees and employers. We know that we will have to continue to increase the premium. We will have to invest in it in order to fund the regime.
So the improvement that is proposed means that Quebec will have to decide how it will harmonize with the federal program. This will create pressure on the premium also. But it doesn't mean that it is not important. It's a very serious topic. We have concerns about income revenue disposal at retirement, but we have forgotten one very important element, the age of retirement.
The previous government implemented an initiative to increase the age of retirement to 67, as most countries around the world have done. But here the government has decided to bring back the age of retirement to 65. It should have been the first tool to use in order to help people consider, because of the aging population, the duration of life; we have to consider making sure that people are considering working maybe a little bit more before taking their retirement. That's exactly what is happening in most other countries around the world.
Senator Stewart Olsen: My question will be for Ms. Moreau. I'm the critic of the bill and I don't think this bill does what we should be doing right now, which is making it easier for Canadians to save rather than making it harder for them to buy a home, reducing the levels of TFSA contributions. Increasing taxes and increasing the CPP will make it very difficult for the component of personal savings and the contributions to CPP.
Is that reflected in your membership? It's like one hand giveth, the other taketh away pretty much with this government and with this legislation. I'm quite worried about it, actually.
Ms. Moreau: Thank you. The data that we've done in terms of polling our members shows that they would rather other options in that if these increases do go forward it's going to have an impact on their business and on the employees and the investments they're able to make in their business.
We've been polling our members on this issue for years. It has been bubbling for some time now. As I mentioned prior to Senator Dean's question, our members support the principle of CPP but they don't support an expanded CPP at this time given the state of the economy. That's why I spent some time at the beginning explaining where things are at. We have this very strange, what we hoped was a blip in October that's not turning out to be the case, hiring plans.
In a stagnant economy, our members are going to struggle to find the extra money that will be asked of them. There's no knowing what state the economy will be in in 2019 when these start to kick in. I think it's going to be, for the smallest of businesses, in particular, a challenge.
Mr. Dorval: I would like to add the fact that the data shows that in Canada it's only one third of the population that will have an issue with income replacement at retirement, which is important, one third. That's why the government has to find solutions for them. The problem, when we come up with a solution for everybody wall to wall, it doesn't fit necessarily to the needs of the two thirds of the population that maybe do not have the same type of issue.
It's a question of making sure that we are not putting in place a wall-to-wall solution that is not necessarily suitable for two thirds of the population.
Senator Eggleton: Ms. Moreau, chart 8, I'm wondering if that's a chart of your members or is it a chart of the public?
Ms. Moreau: This is from a public opinion poll that we did in July last year. That one asked questions of individual employed Canadians.
Senator Eggleton: What we're hearing quite clearly is that these top preferences, like tax-free savings accounts, registered retirement savings plans or personal savings investments, et cetera, are not enough. People are not investing enough in these to have a reasonable pension — hence why we're getting into an enhanced Canada Pension Plan.
Isn't it necessary to have the mix of things? We already have them, but they're not being used enough by people.
Ms. Moreau: The point alluded to by the prior witness is one that we agree with, as well. This is trying to solve a problem with a bulldozer that perhaps requires a scalpel. Our members have told us that for Canadians living below the poverty line in retirement, of course, there needs to be additional assistance for them, but for individual middle- class and high earning Canadians, they don't need additional CPP at that stage. They are saving for retirement, investing in property and looking to sell their businesses at the end of the road where they will be able to profit from that and use that as their retirement fund.
I think if the government is going to be putting in place additional taxes on Canadian business owners and Canadian employees, itt should consider whether all of that money is going to go toward lifting lower-class individuals from poverty or whether it is going to be spread around.
Senator Eggleton: There are enough people above the poverty line who are facing a substantial reduction in their standard of living if you don't have a sufficient mix of these. There are still a lot of people in that category.
Ms. Moreau: I don't have the figures for that. We tend not to veer too far into those issues with our membership, but the reality is that if this plan is to go forward, I think what we're going to be doing is removing investments from Canadians now. It's not going to help those individuals that are on, below or near the poverty line now. It won't even help 10 or 20 years from now. By the time this is in place, I probably won't even benefit from a fully-expanded CPP.
Mr. Dorval: I think the point is fair. There is a need for some segments of the population to find solutions. Again, we are not completely against the bill, because as I mentioned, I think it's a mid-point between the extreme solution that was presented in Ontario and what the federal government is presenting. So there is some arbitrage there.
Again, on the principle, it's a complete solution for everybody, and the need was not the same.
For the very lowest revenue level people in Canada, if you look at the data, their situation is recognized as not a bad one if you compare it with other groups of the population. We have other safety nets for the revenue, and this has to be taken into consideration in the total mix.
That being said, I agree that there are issues, and the government is trying to find a solution. We would have preferred a more segmented solution, but at the same time, there were worse solutions presented. But for some places in Quebec, it creates other issues, and we have a higher payroll tax situation.
If the government would have looked at reducing, on the other hand, other payroll taxes, as an example, it may have mitigated the burden of the cost for the employers and the employees, because they also pay part of that. But the question is whether it is looking just at this retirement situation. If we look above the forest at the total payroll tax contribution, maybe we could find a solution to reduce the impact for employers and employees.
Senator Seidman: My question is for Ms. Moreau to begin with and, of course, then I would be happy to have comments from Mr. Dorval.
In their briefings, the minister and the department people told us when they were here that the two-year notification period and the seven-year phase-in of contributions gives businesses time to adjust, greatly mitigating the near-term impacts on GDP and employment. When I asked whether that was indeed the case and what particular adjustments would be necessary for businesses here, and whether it was the case that this phase-in would mitigate the negative consequences, he did agree that it would and said that, in the long-term, employees would be happier because they would be more stable. Therefore, it would make for a better employment situation and happier employers, in fact.
What do you think about that? Does this notification and phase-in period mitigate the negative consequences on businesses, and if not, what would these negative consequences be? What could we expect?
Ms. Moreau: I think it's difficult to predict for employers what their job situation, in terms of number of employees and the state of their business affairs, will be in a couple of years. The difficult part about asking employers to get ready over two years is you're asking them to save now. Now they're going to put away money instead of investing in their business and, perhaps, instead of hiring another part-time worker or a student, renewing equipment and making investments in technology.
Innovating is a big thread of the government's platform lately and one on which we also have quite a bit of interesting data regarding what our members are doing. We're trying to encourage that. Again, I would refer back to the stagnant economy right now. It's not growing. We're not out of the slump quite yet and I think for business owners who are looking at whether they'd rather hire another individual or start saving hundreds of dollars a month to potentially pay for additional CPP premiums two years from now, it is a difficult question.
In terms of the impacts, you have the vast majority of the data on slide 6, which is our members' response to what the consequences would be for them if they had to start paying for additional CPP premiums, even if that resulted in higher future benefits. Perhaps to get to the minister's point about the happiness of future employees and employers, the first point two-thirds of our members raised is they feel they will face increased pressure to freeze or cut salaries, followed by reducing investments in their businesses. That's almost half, to get to the earlier points; you have the data points there, for that.
I think the reality is the only employees who will be happy about this are probably the ones who are in high school right now and not thinking about their retirement, because that's when this fully funded CPP will kick in for them.
[Translation]
Mr. Dorval: The bill presented to us contains less harmful elements and impact mitigation measures. Spreading the increasing cost of the contribution over a relatively long period of time, requiring the program to be fully funded before being used for retirement and the slow increase in the cost of premiums at the end are positive aspects that must be emphasized.
However, questions can be raised about the very principle of using legislation that applies to everyone and the impact that this could have on other, equally important, types of investments, be they employers or employees.
Your bill contains mitigation measures that need to be highlighted at this point, which is why we must look at it with some openness.
[English]
Senator Marshall: Mr. Dorval, when you made your opening remarks, you spoke about the bill and you said that it's not tailored to specific groups and that really it's a solution that's going to be applied across board, on everyone, whether or not they need it. Then you spoke about other options and you mentioned property ownership and home ownership. What did you mean by that? Were you alluding to this reverse mortgage concept that we see advertised? What point were you making with regard to the reference to property ownership?
[Translation]
Mr. Dorval: Property can be a savings tool, and this type of savings can be used at certain points in life, especially as a pension. In Quebec, the home ownership rate is lower than average. I think we should always consider that investing in personal property is not only an expense, but also an investment that may constitute an estate that can be used throughout a person's life. There are financial tools for retired people, such as reverse mortgages, that enable people to benefit from the income that has been invested in private property without having to leave their homes.
There are a lot of tools, including the TFSA, the CPP and other types of savings. Obviously, an individual must have sufficient income to be able to save. I understand that some parts of the country are overheating, but there are places like Montreal and elsewhere in Quebec that are not. At the moment, there are restrictive measures across Canada for very legitimate prudential matters, whereas in Quebec, we should instead further support home ownership instead of curbing it to contribute to retirement savings, even for people with low incomes.
[English]
Senator Dean: My question is about workplace-based pension plans. If we turn the clock back 20 or 30 years, it was common to find substantial workplace-based joint contributory pension plans in lots of workplaces. In fact, together with the CPP at that time this was considered to be a stable element of providing post-retirement income for Canadian workers and retirees.
That situation has changed dramatically over the last 30 years. We've seen a withdrawal by large numbers of employers, large and small and medium-sized, from workplace-based pension plans. We heard numbers cited today from 35 per cent in workplace-based pension coverage in 1977 down to about 20 per cent or less in 2012. That has a parallel, we know, in a significant shift — in fact, a massive shift —from defined benefit pension plans to defined contribution plans.
That is all very nice if I retire when the stock market is in a nice position but not so good if I'm a defined pension plan member just happening to retire in a dip.
That has been probably the largest shift in the landscape of pension plans in Canada in the last 50 years. What I'm hearing is shifting the responsibility to individuals to save and look after themselves in a context in which a healthy CPP has always been part of the mix.
I would suggest to you, as somebody who has worked in the policy area, looked at pensions, that again I'll come back to, yes, individual-based savings are important, but in responding to that workplace pension change, should there not also be a supplement or some sort of improvement to the Canada Pension Plan, albeit gradual, albeit incremental, and in this case one that has an intergenerational component?
The minister said today this is actually not about us. It's about the generations that follow. Everybody in this room is a recipient of intergenerational policy changes made 40 or 50 years ago in the world of pensions and employment insurance and other cases. This is an opportunity, in fact probably a responsibility for us to do the same thing today for those who follow. But the question is: Are we really hearing that the responsibility to react from the withdrawal of employers en masse from decent pension plans falls on the shoulders of individual workers and Canadians? I would submit that a supplemental CPP needs to be part of that mix.
Ms. Moreau: The key here is, again, to remember that our members, small-business owners are in favour of the CPP. I don't think that they would ever be in a position to get at saying this is not a valuable tool and this is one we believe that the fabric of Canadian society includes and is well to do.
I'm not an expert on the decline of defined benefit and defined contribution pensions. I just know for our members offering pension programs, whether it's a group RRSP or defined benefit or defined contribution plan it is very expensive. When you're small they're very expensive to administer and I suspect that's in part the reason why you've seen a decline over the years.
We are big fans of the PRPP, the Pooled Registered Pension Plan introduced a number of years ago and are encouraging the provinces to roll out the legislation they need to do so. A number of provinces have done that. We polled our members when it first came out asking would they offer one if it was available in the low cost model that it was supposed to be and a third said yes immediately and further detail would be required for some of the others.
I think there's an optimism there that gets at your question that we don't necessarily think it belongs to employees in its entirety. However, this is only one of the payroll taxes that small business owners are facing increases on. Next year, when EI rates are going down for everybody else, for any small business owner that benefited from the small business job credit, which was quite a large number of them, that increase wasn't renewed in Budget 2016 so their rates will actually be going up.
Starting soon, we may be facing carbon pricing increases coming through and the small business tax rate did not continue to decrease as was promised. This is one piece of the pie for small business owners and I think for them it's not just about, "Can I afford to contribute to increased savings for my employees?'' It's the bigger picture, "What can I do to keep my business afloat amid all these extra costs?'' Those are just the federal ones. Some provinces have WSIB and there is an employer health tax in Ontario, et cetera.
[Translation]
Mr. Dorval: That is an interesting question. As the witness right before me said, we have to look at the various elements. The forest is very large. The pension plan is not just one tree; there are other trees in the forest.
Let me come back to the change. Yes, there has been a fairly major change, particularly among large employers — and we represent many of them — who have changed their plan from a defined benefit pension plan to a defined contribution plan, and who continue to invest with employees in some pension plans. Defined contribution plans should not be demonized, because they meet the needs of many workers who, in some places, when they have the opportunity to do so, choose them for their own reasons because they better meet their needs.
We are discussing a bill that is addressed to future generations. But what is the real interest of future generations? Is it to have access to more comprehensive, government-run programs? Or will future workers — who will have benefited from further education through online communications and research tools — want to manage their own savings? They do not want a paternalistic plan that makes decisions for them.
It is interesting because we can discuss this from the other side as well. Defined contribution plans also have their advantages. Today, workers often change workplaces of their own accord. Workers are deciding less and less to pursue a career within a single organization. So defined benefit plans are no longer necessarily tools that meet the needs of workers who want to change careers often.
The Canada Pension Plan and the Quebec Pension Plan are important tools in the portfolio. However, we should not adopt a paternalistic approach and decide which tools each person should use. A tool box with a certain base should be offered. It is not just the pension plan; there are also social security plans, like the guaranteed income supplement, and so on.
Today, workers work longer because of their health and longevity. This has not even been taken into account in the overall picture. If just two years of age were added, the plan could be made even more beneficial with regard to the future income of workers.
[English]
Senator Eggleton: On another one of your charts, Ms. Moreau, number 6, you say, "An immediate mandatory increase,'' but this is an increase over seven years, starting in 2019. Your members appear to be under some misunderstanding of what this means.
Ms. Moreau: In the backgrounder to this question, we do explain what the government's proposal is. I didn't include it for brevity, but it does indicate that starting in 2018 and the progression to 2022, with the extra at the end.
Senator Eggleton: I can understand this chart that says Canadians oppose a CPP hike if it means a wage freeze or cut. That's a natural reaction most people have.
I've seen these reactions, increased pressure to freeze cuts, reduced investments in my business, decreased number of employees, I've seen that frequently whenever there is discussion about raising the minimum wage. Yet I saw a study last year that suggested that over time these effects don't happen when the minimum wage gets raised. There are always individual cases, but on the whole it doesn't happen.
In fact, the department is saying that in the long term, real gross domestic product is estimated to be between 0.5 to 0.9 per cent higher than under the status quo as a result of the CPP enhancement. Employment levels are projected to be permanently higher by between 0.3 and 0.6 per cent relative to the baseline, which the minister today said represented 6,000 to 11,000 jobs.
Even in the short term, employment will continue to grow. There will be a temporary impact that will result in employment being 0.4 to 0.7 per cent lower relative to its projected level in the absence of CPP enhancements. The reduction is very modest, and the department believes that these figures indicate what the real impact will be in terms of jobs and GDP.
Ms. Moreau: I trust those figures are correct, but the concern for us is those figures are only for CPP increases. They don't take into account, as I mentioned earlier, the EI increase that's going to happen next year, a potential carbon tax and the other changes that may happen provincially. That's the concern for our members. It's the broader picture about what the true impact on their business will be, in the culmination of all of these tax changes.
If you think of a small convenience store or your dry cleaner or small grocery in your neighbourhood, I believe the department had quoted that it's approximately $1,000 per employee, all things considered at various wage levels. You're asking a small business to come up with an extra $4,000 a year, to be prepared to pay $8,000 between now and 2018. That's a significant sum of money and it's not money they are investing.
While the figures the department was quoting all fall within less than a per cent, those are only for CPP increases. They don't take into account the other payroll taxes that small business owners are paying.
[Translation]
Mr. Dorval: The Employers Council has developed a concept called a freeze. Basically, it is perfectly legitimate for the governments to propose solutions based on society's priorities and needs for saving for retirement for people who do not save enough. We said at the outset that we had to have a more specific plan focusing on segments of the population and not on a single plan across the country. That said, the idea of a freeze responds to Ms. Moreau's comments.
Socially, we need to move forward with a new program to meet needs, including childcare and parenthood. Legitimate needs are expressed, and governments are able to find solutions. The concept of the freeze is that every time a program creates a new financial pressure on taxpayers, we should automatically find another that is lower priority and reduce the financial impact on the clientele affected. This allows the government to come up with solutions, such as improving the pension plan. Other lower priority areas should also be identified, which would reduce the financial impact and develop new policies without setting limits on businesses or workers.
We have alluded to minimum wage increases. In Quebec, a study made public recently — and it is not the only one — showed that too much of an increase in minimum wage has an impact on investments, jobs and the standard of living of Canadians. In fact, when minimum wage is increased too quickly, an additional cost of living is created. Prices rise and, curiously, when we look at the past 30 years, we see that the cost of living is increasing more quickly for society as a whole compared to benefits. However, if minimum wage is increased gradually over time, the impact can be limited. That is what this bill proposes: to put in place long-term mitigation measures. The approach proposed in this bill is reasonable, although concerns have been raised about the very principle of the legislation.
[English]
Senator Raine: Mr. Dorval, were you involved in the discussions between the federal and the provincial government? The provinces have agreed to support this pension increase, so is your organization giving any input into the impact that is having on your province?
Mr. Dorval: Yes, we have done that in Quebec. We provided numbers. There were studies made by Mackenzie and others regarding the impact on different segments. We came with our data that we presented to the government. Again, the question here is not only the impact of this element in isolation, but the other elements at the same time. Particularly, in Quebec, we have already been increasing the premiums for a few years because we needed to fund the Quebec pension plan at a better level. We are already increasing the premiums and the employers are okay with that. They have supported that because we need a good, well-funded plan.
Now, we are adding another level in improving the program. That's the issue, and that's what we have said to the government in presentations made before different committees that were held in Quebec regarding pensions and so forth. During the last two years we were in negotiations, with both the Conseil de Patronat and the union leaders, to change the defined benefit plan in Quebec. We are the province that has a solution we have implemented together — both the union and the employers — and after making recommendations, we have a new bill for the defined benefit plan, and the other provinces are looking at what has happened in Quebec. Clearly, we showed good leadership in the steps that we have taken to improve the defined benefit plan.
We had a lot of discussions, and particularly with regard to the public pension plan, we were supported in finding a solution. The federal government came up with an agreement among different provinces with certain mitigation measures that we agreed on. At the same time the Quebec government is looking for how we can look at different segments, because there are segments in which the issues are not necessarily the same and where we can all see a huge economic impact. We are talking about a $3 billion impact.
Now, that will not happen in one year. It's over a certain period of time, but this has an impact so we have to find other places where we can decrease the cost to the employers and employees in order to mitigate that impact.
The Chair: I want to thank both our witnesses today. You've brought very important perspectives to this discussion. Because of the time constraints, our next witnesses are in the room, so I'm going to ask for a fast turnaround to get into the next session.
For this session, I'm pleased to welcome the Canadian Labour Congress, who will be represented by President Hassan Yussuff, and Chris Roberts, Director, Social and Economic Policy Department; and from the Canadian Union of Public Employees, we have Mark Janson, Senior Pensions Officer, National Office.
I remind colleagues that this meeting will end no later than 6:15. We will use the one-question-per-round system as we have been doing to get in as many rounds as we can. Precise, focused questions and precise answers from our witnesses will help us get the most information possible out.
I understand by unanimous consent that Mr. Janson will present first and then Mr. Yussuff.
Mark Janson, Senior Pensions Officer, National Office, Canadian Union of Public Employees: Thank you to the committee for having CUPE here today. So you're aware, CUPE is Canada's largest trade union. We represent 639,000 members across Canada in virtually every sector of public work. Many of our members have defined benefit pension plans, although half don't, in their jobs, but they're all members of the CPP so this is an important issue for our members, their families and communities.
The labour movement, CUPE included, played a large role in the expansion of the CPP 50 years ago. CPP just turned 50. In the 1960s, when the plan was set up, we appeared at a committee much like this one and said very supportive things about the establishment of the CPP and the model of the plan, but we were actually sharply critical of the too-limited nature of the benefits. We said it was a great model, but it was just too modest and should be doubled. We essentially have been saying the same thing for 50 years.
The Government of Canada and the provinces struck a balance in the 1960s and chose to establish a public pension plan called the Canada Pension Plan, but the level was set very modestly and it hasn't moved since. The replacement rate was 25 per cent when the plan was introduced in 1965 and it remains there today.
The thinking at the time was that we should keep the public plan modest because we were confident that more and more workers were going to have a pension plan at work and that the private pension system was really going to deliver for most workers.
Fifty years on, I think it's quite clear that hasn't happened and that balance hasn't been borne out. We see fewer and fewer workers covered by workplace pension plans; not even half of Canadian workers are covered. We've never had half of Canadian workers covered by workplace plans over those 50 years.
Those who do have plans are seeing the benefit levels and the benefit security of their plans come under attack. We talked earlier today about DB plans and the pressure on them to convert to less-secure models.
In the individual sphere, the RRSP and the TFSA systems are working okay for some Canadians, but only about a quarter of Canadians participate in these programs every year. It's simply not going to deliver for the vast majority of Canadians.
Add all this up and we've reached a point where something clearly had to be done, so we were very supportive of the deal that was struck in June. We recognize that amending the CPP is not an easy task: the two-thirds/two-thirds rule means this is harder to amend than the Canadian Constitution, so we applaud the federal and provincial governments for sitting down and getting that job done.
While this is an important step forward, we recognize that it falls far short of what we were pushing for. We were pushing for a doubling of CPP benefits from 25 to a 50 per cent replacement rate. We've essentially realized a third of that goal in this deal, so we see this as an important step forward but we still recognize that there's a lot of work to be done in the public pension system.
That good news being said, we have some concerns over some provisions of Bill C-26 that I know the committee discussed with the minister earlier today. This is around the lack of the dropout provisions for child-rearing years and for Canadians who collect CPP disability benefits. So these are long-standing provisions of the CPP and, curiously enough, they are not replicated in Bill C-26.
How CPP benefits work is that your benefit at the end of the day is a function of your career average earnings over your lifetime of work. So if you have periods of low earnings or no earnings whatsoever, that negatively affects what you draw from CPP in retirement.
Governments over time realized this. The original CPP didn't have a child-rearing dropout. It was added in 1977 with great fanfare by the Pierre Trudeau government. Ministers of the day, and I have some quotations here, said adding this child-rearing dropout provision to the CPP would ensure that a contributor who remains at home to care for young children will not be penalized for that period in which he or she has low or zero earnings, and that parents shouldn't be penalized under the CPP for taking a socially desirable and necessary task.
Over the history, since 1977, this provision has mostly been used by women, who continue to do most of the child- rearing work in this country. It's helped women narrow the gap between what they earn in CPP and what men earn, but the gap still exists. For every dollar Canadian men earn on average in the CPP, Canadian women earn 70 cents. That's with that dropout provision. If the dropout provision had not been there, that 70 cents would be lower.
Similarly, there's a disability dropout provision within the current CPP. It has existed since day one of the CPP. It does the same thing. It allows a person for a period where they're collecting CPP disability benefits and not part of the paid workforce to drop those years from the calculation of their CPP retirement benefits. So they're not penalized under CPP for time which they are unable to work.
These two provisions have existed for decades within the base CPP, as we talked about earlier, CPP 1. They're going to continue to exist in CPP 1. But we were shocked when we read the text of Bill C-26 and saw that these provisions don't apply to CPP 2. We didn't understand the rationale. We've heard the government's explanation. We raised this issue at Finance Committee as well. We're not satisfied. I don't think we were satisfied with the minister's response on this issue today.
Government has conceded that more could have been done on the dropouts but they say they're going to raise this with the provinces in December or maybe in the context of the next triennial review of CPP. In our view, this would be much easier to fix now before this bill passes and before the provinces come in December to sign off on the deal.
We raised this issue at Finance Committee. They chose to send the bill back to the House of Commons without amendment. The house has sent it to the Senate without amendment as well.
We asked them to do some costings on this. The only costing done on the child-rearing dropout was in 1977. It was found to be very modest. We expect it would be a very modest cost today for a very important equity benefit within the plan. We can't help but recognize this government has a gender-based analysis position and they've taken strong positions recently on the Convention on the Rights of Persons with Disabilities, which Canada has ratified and just recently pledged to improve through the optional protocol. This is a very clear example where we can take some quite simple action to make this bill better.
All that being said, we're very supportive of CPP being expanded. We would like to see these small provisions fixed.
Thank you for your time today. I'm happy to take questions.
Hassan Yussuff, President, Canadian Labour Congress: Thank you very much, Mr. Chair. Good afternoon. I want to thank the Senate for the opportunity to appear before you here today. It's a pleasure for me to speak to this bill. I'm very proud to be here. The Canadian Labour Congress speaks on behalf of national issues and represents 3.3 million workers, both men and women, across the country in just about every sector and occupation in Canada.
Every day in this country, unions go to the bargaining table to bargain pensions on behalf of their members, and we're very proud of the work we do despite the challenges we face on bargaining expansion of pension coverage for our members.
The labour movement believes that all workers should be able to retire in dignity after a lifetime of work in this country, regardless of whether or not they are a union member. It's a basic principle.
I think this was the position that we took in regard to expanding the CPP. The Canada Pension Plan is a critical part of the retirement security for all Canadians.
The universal CPP delivers a secure and predictable benefit in retirement protected against inflation. It's one of the few pension plans that have longevity. Even when you die you actually get a cheque when you're not even here, for your family.
The problem with the CPP benefit is that it was too low when it was created back in 1965. I don't think there's any debate about that. I think it's generally been acknowledged that this is a reality.
It pays a benefit of just 25 per cent of the pensionable earnings below the average wage.
So we have been fighting, of course, to improve the CPP from the very beginning. Seven years ago, in 2009, it was a very cold winter day in Whitehorse when the Finance Minister gathered. I was there.
We have been there ever since in regard to the campaign that we launched in 2009. The CLC and its affiliates and members across the country worked tirelessly on a campaign to expand the Canada Pension Plan.
If we had not campaigned tirelessly for the last seven years to enhance the Canada Pension, we would not be here today having this discussion about enhancement to the CPP benefit.
This is no exaggeration. I can tell you I've been to every one of these meetings and I'll write a book about it when I retire. I'm not yet retired.
In the beginning, we had no support. Not a single province actually came on side to support the expansion of the Canada Pension Plan, including the federal government, which was very much opposed when the campaign was started by the Congress.
As always, of course, the banks and insurance companies say they were opposed to this and we weren't deterred. We continued to campaign. We educate our members to understand. One of the goods things that came out of the CPP campaign is that we raised the level of literacy among our members around pensions. Because prior to that people were still waiting for somebody to tell them what their pension might be when they got there at the end of the day, so some good has come out of this again.
Gradually, we began to win over Canadians in all walks of life, and polls right across the country began to show that Canadians in every region, in every age group, in every income bracket, regardless of party affiliation, supported an improved Canada Pension.
Gradually, the provinces came to understand why Canadians need a better CPP. Only the federal government stood in its way.
At one time, actually, we even had federal government support under former Finance Minister Jim Flaherty.
The labour movement made the CPP expansion an election issue in 2015, because we believed, given the previous government's hostility to proceed with the expansion, that this had to be an election issue, and we helped change the federal government.
I'm happy and proud to say that the labour movement's consistent efforts are what got us here today.
Critics continue to make the same tired arguments against expanding the CPP. They say that most Canadians don't need better pensions. We know that's not true. They say that rising house prices and RRSPs and TFSAs will provide Canadians with a retirement in dignity. They say that the sky will fall if contributions rise modestly over a gradual phase-in period, which is what the enhancement is going to do.
These arguments have been discredited. They have been rejected by Canadians for the most part. Bill C-26 is the result of a long struggle, of course, and we're proud to see it proceed.
For the first time in 50 years, the Canada Pension Plan benefits will improve. It's a remarkable achievement. On behalf of our organization and our members, I personally thank Minister Morneau for his leadership and his government's leadership, working with the provinces, for their hard work to bring this deal together. It was not an easy task, I can tell you that without any hesitation.
Of course, Bill C-26 is not perfect. I will not repeat all the points that my colleague has made.
For instance, we are frustrated with the disability and child rearing dropouts left out of the enhanced benefit. We think it is wrong. Certainly, it takes us backward in terms of the gains we have made in this regard.
Right now there are large gaps between average CPP benefits for women and men. At the end of 2015, the average monthly CPP retirement benefit paid to women was $449. That was it. This was less than 70 per cent of the average for men, which was $659. Looking at new CPP retirement benefits paid for the first time in 2015, women receive nearly 80 per cent of what men receive. The chief actuary projected that this ratio will rise slowly to over 90 per cent by 2075.
What is going to happen now that the child-rearing dropout has been left out? Will the gap between women's and men's retirement benefits shrink more slowly over time? Will the gap cease to narrow all together? We don't know, and this is obviously the worry in regard to the fact that it's left out in the enhancement.
We have certainly raised this with Minister Morneau, and it is something we hope the Finance Minister is going to raise in December. I think they can do the right thing and fix the problem, because in the absence of that, it is clearly going to make women's ability to have a decent pension in this country less certain.
But make no mistake: Bill C-26 represents an historic and significant improvement in the CPP benefits for working Canadians across this country.
At a time when public pensions are in retreat around the world, Canadian leadership sends a beacon to working people everywhere. This is a proud moment for all Canadians, and they can certainly celebrate the achievement of what these enhancements will do for public pensions going forward.
I thank the committee for the opportunity to present here and I welcome questions.
Senator Dean: Mr. Janson, that was a very helpful reminder of the history, going back to the 1960s, that 25 per cent replacement was set then; it hasn't changed since. Yet the pension landscape in the country has changed massively in terms of the retreat, if I can put it this way, from employers from defined benefit pension plans and, in some cases, pension plans in general.
You've told us that there was an assumption in the 1960s that workplace pensions would flourish and fill a significant part of the balance, 75 per cent of income replacement, that hasn't happened. We know that. That has resulted in us being on the edge of a precipice in terms of 1.1 million families being at risk in terms of income replacement.
You would have liked to see the replacement factor doubled. Premier Wynne, on behalf of Ontario, and other premiers would like to have seen it set at 40 per cent. Finance ministers wrestled with this back in June and settled on 33 per cent, one third, a relatively incremental increase, up from a quarter.
We heard earlier from employer associations pretty much the reaction I would have expected if the income replacement level had been doubled or even moved to 40 per cent, that it is another payroll tax, that it will not be a job- killer, that it will impact hiring and the economy. What are your reactions to those reactions?
Mr. Janson: I think we heard the same thing in the 1990s when CPP contributions were increased. We heard it was going to be a massive job-killer and this was going to be a payroll tax we simply couldn't afford. What we saw over the ensuing period was the employment rate and the economy continuing to grow.
When we look at what we see is the extremely modest nature of this increase — as you say, it could have been higher — and the notice period and the long phase-in, I agree with the comments the minister made earlier that this is such a modest increase and phased in so slowly that it can easily be planned around by workers and employers.
Mr. Yussuff: I'm not surprised about this argument. It has been tried and used before. The world will come to an end, the sky will fall, and the reality is every instance where this has happened, that's not the reality.
Here is the reality: 11 million Canadians woke up this morning, went to work, and have no workplace pension. The only thing they will rely on when they retire is Canada Pension. The vast majority of our members have a pension of some kind in their workplace and we're proud of the work we have done. We think it's wrong for the 11 million Canadians who woke up this morning who work just as hard as our members and don't have a decent pension.
This is good for the whole country. Yes, it will cost employers a bit, but the absence of that is what do we do? We have to increase GIS and OAS payments, and that's taxpayers as a whole paying for that.
It's fair to ask Canadians, regardless of who we are in this country, to help put a little money in for their retirement, and this is a savings account. It's not a payroll tax. It is simply wrong to do that. The employer gets to write off their entire contribution as part of their payroll expenses, but yes, it's going to cost a little bit more. But the absence of that is a country that will have higher poverty levels, if we don't do something, and it's going to be phased in over time.
Mark made the point that in the 1990s, when the premium did go up to stabilize the plan to ensure it's going to be on sound footing, the same arguments were made. Employment rose during that entire period, the GDP rose and the economy grew.
I understand the argument is not different. It doesn't hold water. I understand people are worried about how it will impact them, but it is such a minuscule improvement and the cost phased in over this period of time I don't think will have any impact.
As you know, labour cost is assumed by employers and is worked into their wage assumptions going forward. Given there is enough notice to employers this is coming, I think at the end of the day it's going to have a significant opportunity for employers to plan what they're going to do.
Yes, it's going to cost small businesses a little more, but those same small businesses also need a pension when they retire. These are not individuals who are living high off the hog, and if they contribute to the CPP they get a better retirement.
We did a poll in Ontario as we were mounting this campaign, CFIB members said exactly that: They will support an improved CPP because at the end of the day it means they will have a better pension, if you are able to make this happen. Quite often they work long hours and they contribute to building their business, but at the end of the day they don't have the same opportunity as many of us who work in unionized work places to bargain a pension.
Senator Stewart Olsen: Thank you for your comments. I don't necessarily disagree with your comments or with the strength of a union that adds to the employer's pension plan provisions. Where I am, I do disagree, is that small business people actually support an enhanced CPP. What they're saying is on the one hand, they're going to be paying these increases, and on the other hand, there are things being taken away; for instance, increased payroll taxes, not really an accommodation to enhance.
What I'm thinking is that perhaps there should be a balance. I'm not saying unbalance the CPP. Let's consider these small business people, people without pensions, and not take everything away that might add to their abilities to save. If we can agree on that, certainly we can get together.
I'm also concerned about the dropout. I'm not even sure this is a question, because I hear where you're coming from. I do worry in this economy of today — it's not the same as in the 1990s — I'm concerned that small business will not have the same edge it maybe had in the 1990s. I'm also concerned with what's going to happen with the monies collected by the government and put into a separate special fund, most likely to go into the investment bank, the infrastructure bank.
These are concerns, and I would not like to think that unions don't consider these concerns, as well.
Mr. Yussuff: If I may respond to a couple of the points you made, here are some of the facts about the broader picture that we also need to take into consideration.
Our corporate income tax went from 23 per cent to 15, and that's been reduced significantly. Employment Insurance premiums went down significantly for business. Overall, it went down, not up. That is the statistic, to a large extent, at the end of the day.
I also think that, yes, there are worries about the strength of the economy, how the job market is going to grow and whether the economy is going to pick up.
We have these cycles in our economy from time to time, but I believe the way this incremental improvement will come to the Canada Pension Plan, it will be phased in and have little or no consequence over time. I say this in a very sincere and honest way: I really do believe it's overblown and unnecessary, because the reality as I understand it is that there are challenges in running a small business. I don't doubt the challenges these individuals who are managing their operations are faced with, but given what is projected to happen, I don't think this is going to have that detrimental an impact on small business and the economy overall.
The overall reality of this, of course, is for every one of those 11 million Canadians I spoke about who don't have a workplace pension, when they retire every penny will be contributing to ensuring those small businesses remain viable. These are people, given the statistics I gave you on what the average pension is right now, who will spend the money and put it right back into the local economy.
If 11 million people retire in this country in poverty, guess what we'll have to do? We're going to have to increase income tax for all Canadians and find other means to give them the support they currently get from the OAS and GIS programs across the country.
I think there's a balance. Clearly we wanted a much heftier improvement to the CPP, but in fairness, I think we are sometimes a little bit overblown because I think people are opposed. I know it's not universal among CFIB members, but I think the reality is, yes, this is an expression of that. I do believe there have been other provincial governments that have cut corporate income taxes over the decades — I can go over how much they have reduced it — and that has benefited business in this country. I think everybody is being asked to give back a little, of course, so the 11 million Canadians and other workers can have a better pension.
It's a reasonable proposition and proposal. Obviously we had a preference and bias for a more significant improvement to the CPP. We didn't get there but I think at the end of the day, given what this is going to do, it is one third of an increase to the CPP. I can tell you I've been at the bargaining table for many years in my career as a unionist and I've never bargained a 33 per cent improvement to the pension plan.
Senator Eggleton: Mr. Yussuff, I'm glad you raised the question of whether this is a tax or not because I quite agree with you. I don't think it is. I think it's an investment that will pay dividends. In fact, if we don't do it, you're right: It will cost the taxpayers even more, because it will mean more people will be tending towards poverty.
I also agree with what you've said about the so-called "dropout rate'' with respect to women who are raising children or caring for people on disability. I was happy to hear Mr. Morneau say today that he intends to raise that at the next meeting with his provincial counterparts, which I guess is why it isn't in this bill. It wasn't part of the agreement at that time and he needs to further negotiate it. Maybe that could be an observation from this committee when we deal with the bill tomorrow on that particular point, because I think there's general agreement that it should move forward.
Having said all that, I was going to ask you a question about the previous presentation in the CFIB, but you've already answered, so I don't have a question.
Mr. Yussuff: On the dropout topic, I think we have made great strides in recognizing woman's role in child rearing responsibilities. When men start having kids, we won't have to worry about this. We need to recognize that we can't go backward because it would be a great disservice to women and our country. When it was acknowledged in 1997 that we needed to fix this problem, it was the right thing.
I don't want to pass judgment, because I spent the last seven years on the ground trying to convince people we should do this, and we did do it. I can tell you this: if they don't fix it, we will mount a campaign to make sure they do fix it, guaranteed, because it is not fair to repeat past mistakes that took some time. When the CPP was created, it was not in the structure. It was fixed and for whatever reason this happened, but I don't really know how. Many explanations have been given to me. I'm currently talking to finance ministers who are going to meet in December, and I intend for them to do it. If they don't do it, we are going to start a campaign, because it's simply unacceptable.
Chris Roberts, Director, Social and Economic Policy Department, Canadian Labour Congress: I don't believe it's technically difficult to reintroduce or extend the dropouts to the enhanced benefit. The structure of the calculation of the additional benefit is different than the base benefit in certain respects, but we don't believe there are significant technical obstacles to extending it.
As far as the cost goes, we don't really have a good sense of what the cost of extending those dropouts to the additional benefits is likely to be, but we would encourage the committee to ask the government and the Chief Actuary for an estimate of the likely cost of extending those dropouts.
The Chair: For not having a question, Senator Eggleton, you got a good answer.
Senator Raine: My question is a follow-up to Senator Eggleton's, and it's very simple: Do you have an amendment written for addressing this issue of parental dropout?
Mr. Janson: I don't even know if we'd need an amendment written because the text would exist within the current CPP Act. These provisions exist within the current CPP. It would just be a matter of having the government lawyers make whatever changes are required to import that language into the CPP 2 legislation. I think it should be fairly simple for the government.
Senator Raine: We could make an observation, or we could bring an amendment.
The Chair: This will be a good time for me to remind the committee that if anyone is intending an observation to be added tomorrow, they must come to the committee with a written text and copies for all members of the committee. If you can get it to the clerk ahead of time, it will be translated. It should be in both official languages.
Mr. Janson: I know there was an amendment proposed by the NDP at Finance Committee to deal with this that was ruled out of order. I imagine that text is floating around somewhere.
Senator Dean: On this point, I would just add that I'm not absolutely sure, but I would suggest that such an amendment wouldn't be possible without the finance ministers reconvening.
The Chair: Would you save that for the committee to deal with?
Any discussion along these lines will be at clause-by-clause stage tomorrow. I'm just reminding you of what is required for us to consider an observation at committee during clause by clause.
Senator Eggleton: But an observation is different than an amendment.
The Chair: Exactly.
Senator Eggleton: An observation is just to say we hope you will consider this.
Mr. Yussuff: With regard to the senator's question, I have worked with many of these finance ministers, and when I found out that this was part of the enhancement bill, I was struck by it, because I was there in Vancouver and I did not know this.
Later on, when officials met in various ministries and they put together what the enhancement looked like, that was where this came from. When I did call some finance ministers, they said, "What the hell are you talking about?'' They had no clue. They had to go and investigate what I was talking about. Finally they said, "We don't think we intended that to be the case, because I know you would be mad about it, and two, I'm not sure we could take the politics of that.'' Putting that aside, I said it has to be fixed and I'm hoping they will do the right thing. Obviously your observation, I think, would be helpful, because it goes on the record. You will decide what appropriate action you want to take.
The Chair: We understand all those technicalities so we won't debate those here today.
Senator Frum: Mr. Yussuff, you stated in your testimony that you believe the analysis of the CFIB is overblown in terms of how this bill will impact employment.
You might have seen or you probably did see that the CBC was able to obtain under the Access to Information Act a document from the Department of Finance itself. The Department of Finance projected that this CPP enhancement will have a negative impact on GDP to 2030 and will continue to suppress employment levels until 2035.
If you think that that analysis from the Department of Finance is overblown, I'm wondering if the Canadian Labour Congress did its own employment analysis on the enhanced CPP.
Mr. Yussuff: I'm not aware of the department analysis. As you know, there were many different scenarios that were considered and subsequently where the ministers ended up. There were a variety of suggestions made. I don't know which ones they used in terms of their projections in those figures. It would be good to know what that is. I haven't seen it, to be honest with you, but clearly we think they are overblown. Because when we were asking for doubling of the CPP benefits, we did some calculations on how much that would cost and how that was phased in over a period of time. Again, our conclusion was that it was not going to have a detrimental impact on the economy. But I will let my colleague Chris Roberts answer that.
Senator Frum: If the Department of Finance said it will impact employment levels to 2035, presumably, you would have some concerns about that.
Mr. Roberts: It's important to hold in mind that these are modelling exercises that abstract from a whole variety of real world developments. The best example of how these computable general equilibrium models can go wildly wrong is what happened in the 1990s when the Canada Pension Plan was reset. Contribution rates rose to 65 per cent. There were modelling exercises done at the University of Toronto, published in 1998, that showed that this increase in the CPP contributions was going to have a devastating impact on economic growth, employment creation and incomes.
This was the result of a very sophisticated modelling exercise. What it neglected to incorporate was the actual development at the time, which was a dramatic economic expansion south of the border which brought Canada along with it. The result was exactly the opposite of what was projected using these very abstract economic models.
I would point to the fact that Canada is now adopting a fiscally expansionary stance, and it appears to be likely the United States is as well. We're embarking on a very extensive, long-term infrastructure investment strategy. There are all sorts of other ways that the Canadian government is adopting a strong fiscal stance, and it's entirely possible that that larger context, which the employer representatives rightly pointed to as being important to understanding the larger impact of this one specific change, is likely going to ameliorate those effects that are not captured in those very sophisticated but abstract economic models.
Senator Marshall: I'm interested in some information with regard to the shifted pensions from defined benefit to defined contribution.
Mr. Janson, can you tell us what's happening with CUPE? Are all members covered by the defined benefit? Then perhaps Mr. Yussuff can tell us a little bit about it on a broader scale. Could you give us some background information on what's happening within your union first?
Mr. Janson: I mentioned off the top that many of our members do have defined benefit plans, but we've actually surveyed our members and found out that about half of them don't have DB plans. Many of our members don't have any kind of pension plan whatsoever.
We've seen, particularly since the economic downturn of 2008-09, significant pressures on our DB plans. We've seen employers in every province trying to put those on negotiating tables and scale them back, have the members pay more or get out altogether.
We're certainly not walking forward in pensions a lot these days. The best case, we're kind of staying where we are, which I think is another reason the CPP expansion is so needed.
A lot of people think every public employee has a great pension plan. The fact is that half of our members don't, and those who do are struggling to defend them.
Senator Marshall: Can you give us some information on a little broader basis?
Mr. Yussuff: We used to have about 40 per cent pension coverage and that's been dropping over time.
Senator Marshall: Forty per cent defined benefit.
Mr. Yussuff: Yes, it's pretty well defined. Now it's a combination of many different defined benefits that are still predominant. We have defined contribution and in some cases we have targeted benefits appearing as a new form of benefit. Of course one of the driving forces of this is the challenges with lower returns. Interest rates have been relatively low for a long time.
I think a small quarter of a per cent shift in interest rates would do incredible stuff to liability on pension plans and that will start happening hopefully soon.
Employers are figuring out: "Let's abandon all our responsibility. You either create a defined contribution, I will give you money, and it's done. I don't have any responsibility.'' Or: "We go to some target benefit plan, you figure it out, and I don't have any responsibility.''
Of course there are certain things in life when you get to that stage where you don't have the opportunity to go to work anymore. People want to have an income they can rely upon so they can enjoy their golden years. I think it's unfortunate that for many Canadians this is not the norm.
The one certainty we have in this country is that the Canada and Quebec Pension Plan is a defined benefit plan. It is indexed to inflation and it will follow you for your entire career. More importantly, every contribution you make will determine what your benefit is going to be. That's the wonderful thing about it. It needs to be celebrated more and promoted.
We've said to ministers and colleagues that most Canadians don't know much about the Canada Pension Plan. It's the best kept secret in the country because we don't talk about it. We talk about it when we have these kinds of opportunities, but generally speaking there are not large conversations.
It's been solvent for 75 years, and I don't plan to live that long, but that's how long it's solvent. Yet Canadians don't know anything about it. Very often you don't even get a statement from CPP telling you what your benefit will look like when you retire in this country.
We certainly will ask the minister to address this, where there's a regular requirement to send a statement out to workers of the Canada Pension Plan. We need to promote it. It's a good news story. It truly is a remarkable creation of people who worked to make this happen. Fundamentally, I think the more Canadians know about it, the more ownership they'll take of the Canada Pension Plan.
Senator Petitclerc: My question was answered already, thanks to Senator Eggleton. Like many of us, I was very concerned about those dropout provisions. I think for my own reality, my son is turning three next month, so child- rearing is not that far behind me. Only a few years ago I was at home. I'm a person with a disability, so you can see how this is a concern.
I think one of the things I realized in the conversation and that is underscored is the financial impact for sure, but I think also the message that it sends to everybody in terms of our values as Canadians.
I had a question on your perspective of how that even happened and the costs and what can be done. Maybe you have more to add. Anyway, thank you for answering my question before I asked it.
Mr. Yussuff: The one thing that needs to be said, which we weren't asked, so I'll say it anyway, the greatest benefit to the expansion of the Canada Pension Plan is for the young people, the ones who are starting out their career who are not likely or may not likely have a pension plan. They'll get the greatest benefit of what this plan will bring 25 to 40 years down the road.
Because of precarious employment, uncertainty of regular jobs and not having a pension, they would get the benefit. I have an 8-year-old daughter and this is about her future. It's really about the next generation. Yes, those who have another 5, 10 or 15 years to work will get some benefit from this improvement, but the biggest benefit will go to the young people.
We need to do more to engage them in conversations as to why public pensions are still solvent. It will be there for them when they retire, and more importantly, it is a commitment of what this country is all about. We all create this incredible institution that is serving us very well, and we can do better, of course, when we pull together to make this happen.
An individual province trying to create this is not possible. We can only do this because we do it together as a country.
It's my hope that Quebec, at some point, will join the rest of Canada because Quebecers equally deserve an improved pension, the same as the rest of Canadians. It's unfortunate they didn't join the agreement when it was made in Vancouver, but I hope their consultation will lead them to say, "We want to be part of this expansion because our people need the same improvement that all Canadians are going to get across this country.''
Mr. Roberts: I might be able to add one new thing to this. The additional benefit, as it exists now, has a seven-year dropout effectively built into it because the benefit is calculated on the basis of your best 40 years of earnings, but the contributory period is typically 47.
Minister Duclos has been reported in the media as saying that Canadians can take that seven years of dropout that's effectively built into the enhanced benefit and use it as they like. If they want to leave the paid labour force to raise a child or travel around the world or go back to school, it's really up to them. It's a flexible instrument to make those decisions.
Leaving aside the discriminatory aspect of that in that it doesn't reproduce the existing child-rearing and disability drop-out that exists on top of the low-earnings drop-out, there's a problem just with the trajectory of women's career lifetime earnings. Think about a young woman who is likely to have her zero-earning years between age 18 and 25 but then move into child-rearing ages just as their full-time earnings are likely to increase. They start their careers. We know that the average age of a mother at the birth of her first child is 29 now in Canada, and the average age for all childbirths is 30. It's at those ages when earnings are just beginning to rise significantly that women will be forced to leave the paid labour force to raise their children. At that point, they'll likely have exhausted their seven years of low earnings dropout.
It really doesn't even fit, because those years of child-rearing would have to overlap with, likely, those years of low earnings, and they really don't in the lives of many women.
Mr. Janson: Just to clarify one thing on this, these seven years that he mentioned that's in the new CPP 2, which also exists in the current CPP. There's actually an eight-year general dropout in the current CPP and then child-rearing and disability set on top of that. Just to clarify, this isn't new.
The Chair: I think we understand those issues overall, and clearly those are concerns. Obviously, the committee has realized this and the questions that have occurred today.
I want to thank you for your being here today and for the contributions that you have made. Through these two sessions, we have heard of the security of the CPP through 75 years. That's an actuarial calculation. At least we were told it was an actuarial calculation.
I've been part of organizations where pensions got actuarial advice over time, and while I have the greatest respect for the ability to calculate down the road, I sincerely hope that the account is as stable as has been indicated here today.
I think the issues we're concerned about are the conditions around the new additional part, and there are some things about that that give some of us a little cause for concern in terms of how that's going to be operated and used in order to reach the same level of actuarial soundness down the road, which we will look forward to.
Once again, I do want to thank you for being here. I thank my colleagues for the clarity of their questions. With that, I declare the meeting adjourned.
(The committee adjourned.)